« However, wartime and post-war disruptions and political complications in Europe can only partly explain the severity of the inter-war economic breakdown. Speaking economically, we can look at it in two ways.

The first will see chiefly a striking and growing imbalance in the international economy, due to the asymmetry in development between the USA and the rest of the world. The world system, it can be argued, did not work, because, unlike Great Britain, which had been its centre before 1914, the USA did not much need the rest of the world, and therefore, again unlike Great Britain, which knew that the world payments system rested on the Pound Sterling and saw to it that it remained stable, the USA did not bother to act as a global stabilizer. The USA did not need the world much, because after the First World War it needed to import less capital, labour and (relatively speaking) fewer commodities than ever – except for some raw materials. Its exports, though internationally important – Hollywood virtually monopolised the international movie market – made a far smaller contribution to the national income than in any other industrial country. How significant this, as it were, withdrawal of the USA from the world economy was, may be debated. However, it is quite clear that this explanation of the Slump was one which influenced US economists and politicians in the 1940s, and helped to convince Washington in the war years to take over responsibility for the stability of the world economy after 1945 (Kindelberger, 1973).

The second perspective on the Depression fixes on the failure of the world economy to generate enough demand for a lasting expansion. The foundations of the prosperity of the 1920s, as we have seen, were weak, even in the USA, where farming was virtually already in depression, and money wages, contrary to the myth of the great jazz age, were not rising dramatically, and actually stagnant in the last mad years of the boom (Historical Statistics of the USA, 1, p. 164, Table 722-727). What was happening, as often happens in free market booms, was that, with wages lagging, profits rose disproportionately and the prosperous got a larger slice of the national cake. But as mass demand could not keep pace with the rapidly increasing productivity of the industrial system in the heyday of Henry Ford, the result was over-production and speculation. This, in turn, triggered off the collapse. Once again, whatever the arguments among historians and economists, who still continue to debate the issue, contemporaries with a strong interest in government policies were deeply impressed with the weakness of demand; not least John Maynard Keynes.

When the collapse came, it was of course all the more drastic in the USA because in fact a lagging expansion of demand had been beefed up by means of an enormous expansion of consumer credit. (Readers who remember the later 1980s may find themselves on familiar territory.) Banks, already hurt by the speculative real-estate boom which, with the usual help of self-deluding optimists and mushrooming financial crookery* had reached its peak some years before the Big Crash, loaded with bad debts, refused new housing loans or to refinance existing ones. This did not stop them from failing by the thousands,† while (in 1933) nearly half of all US home mortgages were in default and a thousand properties a day were being foreclosed (Miles et al., 1991, p. 108). Automobile purchasers alone owed $1,400 million out of a total personal indebtedness of$6,500 million in short- and medium-term loans (Ziebura, p. 49). What made the economy so much more vulnerable to this credit boom was that customers did not use their loans to buy the traditional mass consumption goods which kept body and soul together, and were therefore pretty inelastic: food, clothing and the like. However poor one is, one can’t reduce one’s demand for groceries below a certain point; and that demand will not double if one's income doubles. Instead they bought the durable consumer goods of the modern consumer society which the USA was even then pioneering. But the purchase of cars and houses could be readily postponed, and, in any case, they had and have a very high income elasticity of demand.

So, unless a slump was expected to be brief, or was short, and confidence in the future was not undermined, the effect of such a crisis could be dramatic. Thus automobile production in the USA halved between 1929 and 1931 or, at a much lower level, the production of poor people's gramophone records ('race' records and jazz records addressed to a black public) virtually ceased for a while. In short, 'unlike railroads or more efficient ships or the introduction of steel and machine tools- which cut costs- the new products and way of life required high and expanding levels of income and a high degree of confidence about the future, to be rapidly diffused' (Rostow, 1978, p. 219). But that is exactly what was collapsing.

The worst cyclical slump sooner or later comes to an end, and after 1932 there were increasingly clear signs that the worst was over. Indeed, some economies roared ahead. Japan and, on a more modest scale, Sweden, reached almost twice the pre-slump level of production by the end of the 1930s, and by 1938 the German (though not the ltalian) economy was 25 per cent above 1929. Even sluggish economies like the British showed plenty of signs of dynamism. Yet somehow the expected upsurge did not return. The world remained in depression. This was most visible in the greatest of all the economies, the USA, for the various experiments in stimulating the economy undertaken under President F.O. Roosevelt's 'New Deal' - sometimes inconsistently - did not really live up to their - economic promise. A strong upsurge was followed, in 1937-38, by another economic crash, though on a rather more modest scale than after 1929. The leading sector of American industry, automobile production, never regained its 1929 peak. In 1938 it was little more than it had been in 1920 (Historical Statistics, II, p. 716). Looking back from the 1990s we are struck by the pessimism of intelligent commentators. Able and brilliant economists saw the future of capitalism, left to itself, as one stagnation. This view, anticipated in Keynes' pamphlet against the Versailles peace treaty, naturally became popular in the USA after the Slump. Must not any mature economy tend to become a stagnating one? As the proponent of another pessimistic prognosis for capitalism, the Austrian economist Schumpeter, put it, 'In any prolonged period of economic malaise economists, falling in like other people with the humours of their time, proffer theories that pretend to show that depression has come to stay' (Schumpeter, 1954, p. 1172). Perhaps historians looking back on the period from 1973 to the end of the Short Twentieth Century from an equal distance, will be equally struck by the persistent reluctance of the 1970s and 1980s to envisage the possibility of a general depression of the world capitalist economy.

All this in spite of the fact that the 1930s were a decade of considerable technological innovation in industry, for instance, in the development of plastics. Indeed, in one field – entertainment and what later came to be called 'the media' – the inter-war years saw the major breakthrough, at least in the Anglo-Saxon world, with the triumph of mass radio, and the Hollywood movie industry, not to mention the modem rotogravure illustrated press (see chapter 6). Perhaps it is not quite so surprising that the giant movie theatres rose like dream palaces in the grey cities of mass unemployment, for cinema tickets were remarkably cheap, the youngest, as well as the oldest, disproportionately hit by unemployment then as later, had rime to kill, and, as the sociologists observed, during the depression husbands and wives were more likely to share joint leisure activities than before (Stouffer, Lazarsfeld, pp. 55, 92).

III

The Great Slump confirmed intellectuals, activists and ordinary citizens in the belief that something was fundamentally wrong with the world they lived in. Who knew what could be done about it? Certainly few of those in authority over their countries, and certainly not those who tried to steer a course by the traditional navigational instruments of secular liberalism or traditional faith, and by the charts of the nineteenth century seas which were plainly no longer to be trusted. How much confidence did economists deserve, however brilliant, who demonstrated, with great lucidity, that the Slump in which even they lived, could not happen in a properly conducted free-market society, since (according to an economic law named after an early nineteenth century Frenchman) no overproduction was possible which did not very soon correct itself? In 1933 it was not easy to believe, for instance, that where consumer demand, and therefore consumption, fell in a depression, the rate of interest would fall by just as much as was needed to stimulate investment, so that the increased investment demand would exactly till the gap left by the smaller consumer demand. As unemployment soared, it did not seem plausible to believe (as the British Treasury apparently did) that public works would not increase employment at all, because the money spent on them would merely be diverted from the private sector, which would otherwise have generated just as much employment. Economists who simply advised leaving the economy alone, governments whose first instincts, apart from protecting the gold standard by deflationary policies, was to stick to financial orthodoxy, balance budgets and cut costs, were visibly not making the situation better. Indeed, as the depression continued, it was argued with considerable force not least by J.M. Keynes who consequently became the most influential economist of the next forty years – that they were making the depression worse. Those of us who lived through the years of the Great Slump still find it almost impossible to understand how the orthodoxies of the pure free market, then so obviously discredited, once again came to preside over a global period of depression in the late 1980s and 1990s, which, once again, they were equally unable to understand or to deal with. Still, this strange phenomenon should remind us of the major characteristic of history which it exemplifies: the incredible shortness of memory of both the theorists and practitioners of economies. It also provides a vivid illustration of society’s need for historians, who are the professional remembrancers of what their fellow-citizens wish to forget. »

HOBSBAWM, Eric, The Age of Extremes, London, Abacus, 1994, p. 99-103.

* Not for nothing were 1920s the decade of psychologist Emile Coué (1857-1926) who popularised optimistic auto-suggestion by means of the slogan, constantly to be repeated: 'Every day in every way 1 am getting better and better.'

† The US banking system did not permit the European kind of giant bank with a nation-wide system of branches, and therefore consisted of relatively weak local or, at best, state-wide banks.